Summary:China, "the world′s hottest economy," as moderator Timothy Dattels opened, has captured world attention with its recent rapid climb to true global economic powerhouse status. China′s GDP grew at a blazing 9.5 percent in 2004, much more than any other major economy. What explains this strong growth and what are the effects, positive and negative, for China and the world?
Panelists discussed some of the key trends leading to China′s growth: rapid industrialization, accelerating urbanization, fast technology development and mass privatization. With China expected to pass the U.S. in real GDP by the middle of the century, understanding the implications of these trends now is important so that potential threats to world stability are addressed early.
Zachary Karabell pointed out that China′s growth was actually understated by these statistics since only about 200 million Chinese can be called "consumers" from an economic standpoint. Approximately 150 million people are still participating on the economic "fringe." When more of the approximately 800 million rural Chinese participate, growth could accelerate even faster.
With 50 percent of all cell phones and more than 70 percent of all DVD players manufactured in China, most people are familiar with China′s large share of global manufacturing. What people may not know are the residual effects on Chinese society. People are flooding into China′s bustling cities from traditional agricultural communities at staggering rates, causing poor living conditions and serious future environmental problems.
As the world′s second-largest consumer of oil and its largest consumer of steel, cement and many other metal commodities, China′s extremely low productivity and energy efficiency rates are of particular concern to panelist Perry Wong. China can produce at low costs today, but its low productivity comes at a high cost to the environment — with 15 of the world′s 20 most polluted cities that country.
Despite China′s growing pains, many investors like panelist Frank Sixt are bullish on its many business opportunities open to foreign investment. Hutchison downplayed the negative concerns raised regarding the lack of a free media, threat of government expropriation and limited IP protection, and he is confident that China will remain a great place to do business.
Some see familiar patterns from our own recent history. "A lot of rhetoric we hear about China now is similar to the rhetoric around Japan 20 years ago," said Shelly Singhal, who sees a lot of parallels in China′s growth with the rapid growth experienced by the U.S. from 1947 to 1960. Regardless, China is currently second in purchasing power only to the U.S. As it continues to grow and more essentially intertwined in world trade, its importance to the global economy will increase exponentially.
What is the biggest risk? According to Zachary Karabell, that there be no "hard landing" from China′s meteoric rise and that it not follow any of the patterns that economists and investors search for.
